Wednesday, July 16, 2008

The root of this financial crisis, and why you must buy gold now

The root of this financial crisis, and why you must buy gold now

'...As Winston Churchill put it: "All previous attempts to base money solely on intangibles such as credit or government edict or fiat have ended in inflationary panic and disaster." Sound familiar? The greatest credit expansion in history was only made possible under this post-1971 system of currency by government decree. But now it's unravelling.'

Posted by damien @ 11:27 AM (1375 views)
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19 thoughts on “The root of this financial crisis, and why you must buy gold now

  • musn't grumble says:

    Yeah, yeah …. let’s all inflate another bubble – have we not learnt our lesson yet?

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  • It’s like a broken record. We see the same old message posted several times every day by the same group of people. Isn’t there a website called goldpricebubble.com or something where you can post this drivel?

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  • Maybe a stupid question,
    is Gold traded only in dollars (like Oil)?
    e.g. if I buy gold in dollars, but the dollar goes through the floor, this doesn’t really help me much in a non-dollar economy …

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  • This guy keeps pushing gold and here he’s got a cheap article out of a re-run of ‘the old goldsmith’s scam’ story. For an alternative to the ‘fiat money bad, gold standard good’ view it’s worth looking at Hayek’s ‘The Denationalisation of Money’ pages around 109-122, in which he argues that the problem is money issued monopolistically by governments and the solution is not a gold standard but non-monopolistic, competing currency issuers. Its at http://www.iea.org.uk/files/upld-book431pdf?.pdf

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  • Make that pages 109-112

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  • theboltonfury says:

    yeah, give this rubbish a rest now

    BTW – STR1, ‘the tsunami was caused by the NWO’ – you are a certifiable lunatic who should be uterly ashamed of himself for posting such insensitive rubbish. Seriously, go and see a doctor

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  • I have a question for all the gold rampers on here.

    What value do you think is a fair value for an ounce of gold, and how did you calculate it.

    Gold’s intrinsic value comes from the fact that it looks nice, and you can make jewelry out of it. The largest market for gold jewelry is India, and they aren’t buying at the moment because gold is too expensive.

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  • “All previous attempts to base money solely on intangibles such as credit or government edict or fiat have ended in inflationary panic and disaster” – Winston Churchill

    That is a fact and you only have to look at the French Revolution as an example.

    http://www.compulink.co.uk/~archaeology/civilisation/Later/french_revolution.htm

    ‘Inflation is the hidden ingredient in the French revolution, yet it is one that is tossed aside or ignored by virtually all historians of the period. Yet the French revolution is one of the classic cases where a monetary analysis is the vital hidden ingredient and makes sense of the whole phenomenon’

    On a personal note, back in 2003 I was invited to a private party at a mansion filled with well to do people. The only reason we were there was because a friend was playing the music and invited me along to help out setting up the sound system. It was only a few months before this that I had started to invest in gold for all the reasons mentioned in this article that some seem to think is gold ramping and bubble talk. At the party I met someone who is a top adviser to Investment Banks and alike and after finding out what he done I explained to him why I had shoved my house sale cash into gold and silver. Talking non stop for over an hour about the gold standard , bretton woods agreement, fractional banking, the history of money and the coming collapse of the dollar he was gob smacked and could help but laugh at how much I knew for a run of the mill guy. He even invited a friend over to listen as I was explaining about the reasons which are very similar to the article posted. They were smiling and shocked to say the least and asked how did I know all of this ? After explaining that I knew someone who worked for a mining firm and it was them who advised me and explained all this and what was coming. They then told me what shares they were heavily investing in and totally agreed with all the points mentioned and said that America’s problem would not go away and they would be very suprised to see the dollar last another 2 decades.

    Taking into account this was over 5 years ago, I fail to see how the same points in this article which are fact, not bubble talk, can be ignored / dismissed by anyone is beyond me.

    Gold is not in a bubble, the dollar is slowly collapsing. Very very simple.

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  • beartil2010 says:

    I must agree with debtfree here. Gold supply is inelastic and finite, and long term maintains its value relative to other things (not money); you can lways exchange an ounce of gold for something. However paper money keeps being devalued.

    For instance if I said ‘the price of a house over 60 years has gone from £10,000 to £200,000’ it seems normal because of inflation; but if you said a house has gone from 20 ounces of gold to 400 ounces of gold it would seem strange. How about over twice that timeframe – in 2060 or so a house is now worth 8,000 ounces of gold. ‘Eh? You’re crazy!’

    Paper money just keeps on growing; and so it becomes more worthless.

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  • Blindleadtheblind says:

    jonb when the value of one ounce gold is the same price as the dow…if this helps

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  • theboltonfury says:

    well done you… and it’s relevant to this site why?

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  • beartil2010 says:

    Strangely the people here are not all singularly-house-obsessed and look at a house in the perspective of their finances, money and investment. Usually you can pick up a lot of interesting viewpoints from people on here – it’s certainly helped me.

    Specifically, the evolution of money from gold to debt is exactly the cause of this house price crash, if you must be padantic.

    I don’t object to anything that helps me manage my finances better so I can eventually afford a house!

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  • @theboltonfury

    Because… gold is linked to Bretton Woods and the change in laws since 1971 are related to inflation in house prices.

    The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value—plus or minus one percent—in terms of gold and the ability of the IMF to bridge temporary imbalances of payments. In the face of increasing strain, the system collapsed in 1971, following the United States’ suspension of convertibility from dollars to gold.

    Until the early 1970s, the Bretton Woods system was effective in controlling conflict and in achieving the common goals of the leading states that had created it, especially the United States.[citation needed]

    Until this system collapsed house prices were more stable, but since 1971 they have been more volatile and inflated and deflated.

    Why do you think the nationwide chart starts in 1971 ?

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  • holding out says:

    There’s nothing wrong with references to gold, currencies etc. nor is there any problem with posting articles on them. This is just the daily Moneyweek newsletter – this one happens to be about gold. For people who have STR’d or who have savings the question of where to put your money is extremely relevant. Where it gets a bit tenuous not to mention tedious is when water powered cars, NWO, Man made Tsunamis (spare me!) and other associated tosh comes in.

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  • icarus,
    We already have a kind of market for non-monopolistic, competing currency issuers, they are called bankers (and world bankers) and they are creating loads of unbacked, fractional-reserve fiat money (debt), out of thin air, worldwide, thus we have growing inflation. The lesson is that all currency must be back be backed by a finite value resource (i.e. a valuable robust commodity like Gold), not by hot air from banks and politicians, otherwise inflation and it’s consequences are inevitable.

    I vote Gold.

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  • In the long run, land is better than gold.

    It is a basic need.

    The supply of gold increases by 2% a year.

    Land pays a yield.

    Land’s value is inflated by credit creation.

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  • At the centre of the Bretton Woods system was not only gold but also the US dollar. The US, the dominant economic and military power, wanted to peg the currencies of member states to the dollar and to make the dollar redeemable in gold and it got its wish.

    This is the connection between Bretton Woods and today’s financial mess: The US now called the shots and Americans could spend as they wished and, regardless of the requirements of countries holding dollars as reserves, the Fed could print as many dollars as it wanted. The US could start to run trade deficits and ignore other member states, which were concerned that it would repay the money borrowed to cover its trade gap with depreciated dollars. De Gaulle called this ‘exhorbitant privilege’ and he and others demanded payment in gold. With an adverse trade balance Nixon faced a run on the US gold supply and he unilaterally ended his legal obligation to redeem dollars with gold.

    The dollar remained the dominant international currency but traded without any external measure of value. After a decade of inflation, in which the Fed kept interest rates high, the Americans realised that dollar dominance enabled it to run cheap money policies, devaluation, inflation and deficits without being punished as other currencies would be punished for pursuing such policies (indeed dollar dominance increased the punishment to other currencies, since any sign of currency weakness caused a flight to dollars). If the US kept interest rates low to help it out of potential recession this enabled/encouraged others to keep IRs low, especially those who were keen to peg to the dollar. The answer to the dot.com bubble was low IRs and the subsequent house price bubble.

    The root problem of the Bretton Woods system was dollar dominance and America’s ability to break free of tying the dollar to gold or anything else.

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  • @ 15. icarus

    Well played.

    See, it all makes sense when you stitch it together.

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  • Thank you, debtfree, but I’m putting more emphasis than most of the posts here on dollar dominance as the root cause.

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